Naslov
How (I)Rrational Are We? Case of Croatian Inflation

Autori
Erjavec, Nataša ; Lolić, Ivana ; Sorić, Petar

Vrsta, podvrsta i kategorija rada
Sažeci sa skupova, sažetak, znanstveni

Izvornik
Book of Abstracts of the 15th International Conference on Operational Research (KOI 2014) / Scitovski, R. ; Zekić-Sušac, M. ; Lukač, Z. - Osijek : Hrvatsko društvo za operacijska istraživanja (CRORS), 2014, 101-101

Skup
International Conference on Operational Research (15 ; 2014)

Mjesto i datum
Osijek, Hrvatska, 24.09.2014. - 26.09.2014

Vrsta sudjelovanja
Predavanje

Vrsta recenzije
Međunarodna recenzija

Ključne riječi
inflation expectations; rational expectations hypothesis; state space model; consumer surveys; time-varying parameters

Sažetak
The rational expectations hypothesis (REH) today presents the workhorse model of modern macroeconomics. It is widely accepted that economic agents are utterly rational and fully informed, taking into account all the relevant information when making economic decisions. However, the fact that most macro models employ the rationality assumption does not mean it is indeed true. This paper aims to add to the literature by analysing whether the REH holds in the case of Croatian consumers and their inflation expectations (measured by consumer surveys). Previous studies on this issue focus entirely on examining the relationship between actual and expected inflation in a purely linear fashion. Adding to the existing literature, this paper investigates whether time-varying econometric models in a state-space framework offer new insights on the matter. The authors estimate eight separate state-space models in order to properly explain the relationship between actual and expected inflation in Croatia. According to the Akaike information criterion, the best model is found to be the one with a timevarying constant term, fixed slope, and fixed seasonal component. While the slope is approximately equal to zero, the estimated constant term (reflecting the expectations bias) varies around 3% throughout the analysed period of 2005-2014. This implies that Croatian consumers heavily overestimate actual inflation dynamics, which is utterly in line with similar international research. Also, this kind of expectations-actual inflation relationship can also be attributed to the anchoring heuristic. Namely, the obtained results reveal that the actual inflation dynamics hardly has any effect on consumers’ inflation expectations. The consumers produce inflation estimates independently and reappraise them only in case of extreme events. Two such occasions were also documented here in the analysed period: i) the constant term reaches its historical maximum in 2009 due to the price boom of food and energy on the world markets ; ii) the constant term falls sharply after the Croatian accession to the EU. The latter can be attributed to the record-low inflation figures after mid-2013.

Izvorni jezik
Engleski

Znanstvena područja
Ekonomija

POVEZANOST RADA